Altagas (TSX:ALA) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, thank you for standing by, and welcome to the AltaGas Second Quarter twenty twenty six Financial Results Conference Call. My name is John, and I'll be your operator for today's call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. As a reminder, this conference call is being broadcast live on the Internet and recorded. I would now like to turn the conference call over to Aaron Swanson, Vice President, Investor Relations. Please go ahead, Mr. Swanson. Good morning, and thank you for joining AltaGas' Second Quarter twenty twenty six Results Conference Call.

0:46 This call is being webcast, and we encourage following along with the supporting slides that can be found on our website. Speaking this morning will be Vern Yu, President and Chief Executive Officer and Sean Brown, Executive Vice President and Chief Financial Officer. We are also joined by Randy Thun, President of Midstream Corian Bushfield, President of Utilities and John Morrison, Senior Vice President of Corporate Development and Investor Relations. We will refer to forward looking information on today's call. This information is subject to certain risks and uncertainties as outlined in the forward looking information disclosure on slide two in the presentation. Prepared remarks will be followed by a question and answer session. I'll now turn the call over to Burton.

1:33 Thanks, Aaron. Good morning. I'm going to start by reviewing highlights from the quarter, including our strong financial and operating performance. Then I'll walk through progress on our growth projects in midstream and utilities. I'll finish by reviewing the state of the global LPG market and how that is creating growth opportunities for AltaGas. After that, Sean will cover our segmented financial results and provide more details on our increased 2026 guidance. I'd like to start by introducing Corrine, who is now leading our utilities business. Corrine has been with AltaGas for more than a decade and is a valued member of our executive team. We're excited to have Kareem step into this role, given her proven track record of operational excellence and strong financial leadership.

2:27 Let's begin on slide four. We delivered record financial results in Q2, reflecting strong performance from both Midstream and utilities. I should note that Midstream's financial results in Q2 benefited from historically high global export spreads and physical sale premiums. We generated normalized EBITDA of $391,000,000 and normalized EPS of $0.31 increases of 1415% over Q2 twenty twenty five. Our strong first half gives us the confidence to raise our 2026 guidance. We've increased normalized EBITDA guidance by 4% to a new range of 2.0 to 2,100,000,000, and normalized EPS by 6% to a range of 2.35 to 2.60 per share.

3:23 Our balance sheet remains strong throughout the quarter, with leverage closing at 4.4 times, below the low end of our 4.5 to five times target range. Operationally, we exported a record 144,000 barrels per day of LPG, a 13% increase over Q2 twenty twenty five. Midstream throughput continued to grow with Montney volumes up 8% year over year, and we added two high quality partnerships to our platform, the Ground Birch Rail Terminal with Tourmaline and the ACE Rail Terminal in Fort Saskatchewan with Keyera and CN Rail. In utilities, we continue to advance our system modernization programs.

4:12 Year to date, we have deployed over $200,000,000 of capital and replaced 21 miles of pipe. Let's move to our growth projects, starting with Reef on Slide 5. Construction on Reef continues to advance, and the project is now 85% complete. Onshore execution has been strong and ahead of plan. On the uplands, all major equipment is installed and commissioning should begin in late August. The railroad corridor is entering its final construction phase and will be completed before year end. While onshore execution has been ahead of plan, in water construction has proven more challenging due to maritime conditions and weather delays.

5:00 Since we started in water construction at REEF in the fall of twenty twenty four, we have lost over four fifty rig days due to extreme weather, extreme ocean swells, and marine mammal activity. These lost rig days significantly exceeded any normal plans. As a result, onshore efficiencies are no longer expected to fully offset higher in water construction costs. We now expect REEF to come online before the end of Q1 twenty twenty seven and have increased REIF's capital cost estimate by 12% to approximately $1,500,000,000 With the jetty and loading platform now 80% complete, Most in water construction is set to be completed over the next six weeks.

5:52 We view the revised schedule and cost as highly achievable, and we'll get into those details shortly. Reef Optimization one remains on schedule for an in service date in the second half of twenty twenty seven, and it will add 30,000 barrels per day of incremental propane export capacity. We're also advancing Reef optimization too, with key regulatory permits secured and engineering progressing towards final class three cost estimates before the end of the year. On slide six, we outline reefs remaining major work streams and highlight what has been completed to date. The in water works have been the most challenging, but we're almost done.

6:39 All 48 of the piles for the Jetty Piers have been drilled and completed. Only five piles remain to be drilled for the loading platform, and that should be completed by the end of August. All of the jetty trestles that span 1.2 kilometers have been installed. The transition platform has been delivered and set. Fabrication of the main loading platform is complete and is about ready to be loaded for an August delivery. The mooring system fabrication is nearing completion and is set to be delivered in November and installed in December. With the Eden Water phase of construction, the most complex and challenging part of REEF nearing completion, we're highly confident that we'll be able to meet our revised cost estimate and schedule.

7:32 Slide six shows how the platform and mooring system will be installed on the jetty, which is a low risk installation and part of our modular design. Turning to slide seven, you will see the progress on onshore construction activity. All modules have been received and all equipment has been set. Mechanical completion is now 90% and we expect to commence off lands commissioning by the end of August. The rail loop and utility corridor are now 70% finished and are on track to be completed by mid November. Slide eight shows the progress on our other growth projects. At RIPET, our methanol removal project remains on track for completion by year end.

8:20 Our Gimsdale storage expansions are now more than 50% complete with pipeline tie ins completed. We're on track to start the drilling of the injection wells in the third quarter. Phase one will add six Bcf of storage by year end twenty twenty six and phase two will add another 30 Bcf of storage by mid-twenty twenty seven. At the Mountain Valley Pipeline, Southgate construction is underway. Pipeline welding began in early July and the project is on track to be in service by year end twenty twenty six, ahead of schedule. MVP Boost continues to advance through its regulatory steps and is expected to be in service by the middle of twenty twenty eight.

9:08 During the quarter, we reached a positive FID on a debottlenecking project at Townsend, which will add 6,000 barrels per day of fractionation capacity. Within utilities, we have more than 5,000 miles of pre-1970s pipe that needs to be replaced to enhance safety and reliability. To support that, we have $1,500,000,000 U. S. Of modernization programs approved by regulators across our four jurisdictions. Modernization capital, system expansion, and customer adds are expected to drive 10% rate base growth in 2026. This rate base will improve the safety and reliability of our system.

9:53 Every mile we replace reduces the risk of leaks and safety incidents, service disruptions, and operating costs for our customers. Despite these large increases in rate base, we've been able to keep customer bill increases around 4% per year based on operating cost savings from these modernization investments and other O and M cost management initiative. Demand for natural gas across The US continues to rise, driven by heightened commercial and industrial activity, data center and large load development, and ongoing population growth. The Mid Atlantic sits in the center of this expansion. For example, PJM data center load is forecast to increase by fourfold over the next eight years.

10:42 Turning to slide nine, I wanna touch on the disruption in The Middle East and what this means for the global LPG market and our global export business. LPG exports through the Strait Of Hormuz are more than 70% below pre conflict levels. Since their disruption began, more than 160,000,000 barrels of LPGs have been displaced from global trade. That has tightened market balances and reinforced the value of stable Canadian LPG supply. We're seeing very strong demand across our traditional markets of Japan and South Korea and growing demand from China. We're also seeing incremental demand from other Asian markets that have historically relied on Middle Eastern supply.

11:33 Given the favorable market dynamics, we continue to advance Reef Opti two and see the need for additional reef phase every two to three years to meet the market demand in Western Canada. We're also seeing significant interest from China for Canadian ethane exports as a way to diversify its long term ethane needs. Today, roughly 500,000 barrels a day of ethane is left in the natural gas stream in Western Canada, while Asian demand keeps growing. We're actively working through the complexity of connecting these markets, as we see this as another opportunity to provide Canadian energy to the best global markets.

12:21 Finally, let me close on the progress we've made on our strategic priorities in 2026. AltaGas' future is very bright. We've executed consistently, growing, derisking, and strengthening the enterprise through the first half of the year. In the second quarter, we delivered record volumes from our global export platform and higher throughput across our midstream value chain. We continue to actively manage risk through hedging, commercial contracting, and diversifying our downstream markets. We're advancing multiple rate cases in our utilities to earn appropriate returns on our capital investments and minimize rate lag. Our balance sheet is strong with leverage below our target range, which has allowed us to advance multiple projects that will drive long term growth.

13:15 Taken together, we're extending our competitive advantages, improving the quality and visibility of our cash flows, and creating a longer runway for disciplined expansion across AltaGas. I'll now turn it over to Sean to walk through our segmented results and increased 2026 guidance. Thanks, Vern, and good morning, everyone. As mentioned, we are very pleased with our record second quarter performance. The continued execution across our platform has enabled us to increase our guidance and positions us to deliver over 10% year over year EBITDA growth. For today's call, I'll start by walking through our segmented financial results and then I'll discuss our updated 2026 guidance and capital budget and close with our balance sheet strength and investment proposition.

14:09 Turning to slide 12. In the quarter, the Utilities segment delivered normalized EBITDA of $142,000,000 a 6% increase year over year. This increase was driven by higher revenue from continued system modernization investments, new rates in D. C. And interim rates in Virginia, as well as stronger retail performance. Compared to the same quarter last year, results were partially offset by higher G and A expenses and lower asset optimization activity at Washington Gas. From a capital perspective, during the quarter, we deployed approximately $240,000,000 in the Utilities segment, including $130,000,000 toward modernization programs, dollars 21,000,000 on new growth initiatives and $86,000,000 on system betterment programs.

15:05 Of note, our modernization spending has resulted in us replacing over 20 miles of vulnerable pipe year to date. These investments are focused on delivering long term safety and reliability while extending our network to serve our expanding customer base. In addition, in June, we officially kicked off construction of the Kewa Connector Pipeline. The majority of the materials are now on-site with pipe welding, bending and placement ongoing. We continue to expect construction to be completed by year end 2026. We are also making solid progress on our two data center pipeline connection projects in Virginia and Maryland, both of which remain on schedule for completion in the fourth quarter of twenty twenty six.

15:52 Though individually not material in size, these projects underscore the increasing importance of our gas utility infrastructure in enabling reliable energy delivery for large load customers. Looking forward, we continue to see a robust pipeline of opportunities with sustained interest from data center and large load industrial customers seeking reliable, scalable and cost effective energy solutions. Turning to slide 13, we highlight our ongoing regulatory initiatives. This week, we received a final order in Maryland where the commission approved U. S. Dollars 38,000,000 in new revenue, including certain costs currently recovered through the STRIDE surcharge based on an allowed ROE of 9.4%.

16:44 Active rate cases in Virginia and Michigan are ongoing. In Virginia, interim rates remain in effect with WGL seeking US65 million dollars of incremental revenue net of a US39 million dollars ARP surcharge. In Michigan, we are seeking new rates and an extension to the modernization program, requesting $61,000,000 in revenue and US $284,000,000 of proposed spending for Michigan's modernization programs through 2031. We expect final orders in Virginia by the end of Q3 and in Michigan before year end. Late in the second quarter, the Public Service Commission of DC approved a six month US18 million dollars extension of the existing Project Pipes two modernization program through the end of twenty twenty six. This came after our U. S. Dollars 150,000,000 district safe ARP program was approved but subsequently reopened as the Commission determined a further hearing was necessary.

17:52 The hearing was held this week and we expect resolution by the fourth quarter. Importantly, our utilities investments are expected to drive 8% long term rate base growth through 2030, supporting stable cash flows, earnings growth, dividend durability and shareholder value. Turning to slide 14, the strength in our Midstream business continued, delivering $285,000,000 of normalized EBITDA, up 33% year over year and above our expectations. The segment's outperformance was driven by our exports platform, which exported record volumes and delivered strong merchant margins. The segment also benefited from continued strong performance across the balance of our midstream assets, particularly in the Montney, where producer activity remained strong and continues to drive basin growth.

18:47 From an operational perspective, we exported a record 144,000 barrels a day of LPGs across 23 VLGCs at our Ferndale and Rimpet terminals with volumes up 13% year over year. Strong terminal execution and logistics supported record Ferndale exports of nearly 60,000 barrels a day driven by improved rail switching efficiency along with higher rail, refinery and truck in volumes. RIPET exported roughly 84,000 barrels a day of propane and continued to operate near capacity. In the rest of our midstream platform, GMP utilization remained strong in the quarter, although margins were tempered by lower realized frac spreads due to the impact of hedging.

19:37 Harmattan was offline for thirty two days for planned maintenance. Excluding the impact of the Harmattan turnaround, throughput volumes were 9% higher year over year. Montney growth remained a key driver supported by our strategic footprint across liquid rich areas of the basin and continued producer activity. In the Alberta Montney, our Pipestone Complex continued to perform well averaging roughly 90% utilization through the quarter as area volumes continued to increase. In Northeast BC, strong volumes continued across our Montney assets with North Pine throughput up 23% year over year continuing to operate near its 25,000 barrel a day capacity. But looking across our system, the underlying growth we are seeing reinforces the value of our Northeast BC liquids expansion projects, which are designed to unlock additional value from Townsend and North Pine while deepening our strategic producer relationships.

20:37 Looking ahead, we are well hedged for the balance of 2026 and have derisked much of our Q4 exposure with approximately 91% of expected remaining 2026 global export volumes either tolled or financially hedged with an average FEI to North America spread of approximately US21.81 dollars per barrel on non tolled volumes, while 9% of volumes remained open to market pricing. In addition, our entire 2026 Baltic freight exposure is hedged through a combination of time charters, financial instruments and tolling arrangements. We also continue to manage frac spread exposure and have 84% of expected volumes hedged at an average price of $22 a barrel.

21:25 To close out the discussion on our financial results, the Corporate and Other segment was lower year over year primarily due to higher employee incentive costs tied to a rising share price. Turning to slide 15, year to date we have seen outperformance from both business segments with significant strength in our LPG export business driving an increase to our guidance. We have raised our EBITDA guidance to a range of $2,000,000,000 to $2,100,000,000 representing a 4% increase over the original guidance midpoint and 10% growth year over year. At the same time, we are raising our EPS guidance to a range of $2.35 to $2.60 per share, a 6% increase over the original guidance midpoint and 11% above last year's levels.

22:16 Additionally, as outperformance is more weighted to our Midstream business, we've adjusted our estimated year end 2026 segment EBITDA mix with Midstream now expected to contribute approximately half of normalized EBITDA resulting in a range of 48 to 52 for both segments. As shown on slide 16, we have also increased our 2026 capital budget, which now sits at $1,800,000,000 up from $1,700,000,000 previously. This increase reflects higher capital expenditures for the construction of REIF as well as capital associated with the positive FIDs of the Northeast DC liquids expansion project and the Graham Birch Rail Terminal.

23:01 61% of 2026 capital is now expected to be allocated to the utility segment, 36% to the midstream segment with the balance to the corporate segment. Utility capital is primarily directed towards modernization and system betterment initiatives, which are expected to drive 10% year over year rate base growth. Midstream Capital remains focused on REEF including OptiOne, Dimmesdale and our new Northeast BC project announcements, all of which underpinned the segment's robust growth outlook. As shown on slide 17, our $1,800,000,000 capital program remains well within our investment capacity. Our relatively low dividend payout ratio along with our strong business performance has allowed us to increase our 2026 capital program while remaining within our debt target ranges and deliver on our 5% to 7% EBITDA and EPS CAGR.

24:02 Looking forward, our capital allocation priorities remain the same as we look to cover maintenance spending and advance key growth projects that position the business to deliver on its long term growth guidance. As shown on slide 18, we exited the quarter with a trailing twelve month adjusted net debt to normalized EBITDA ratio of 4.4 times, modestly below our target range. With the increase in shape of our 2026 capital program and considering the seasonality of our business, we expect our leverage metric to trend towards the midpoint of our 4.5 to five times target range as we progress through the year. On slide 19, we highlight AltaGas' consistent track record of delivering per share growth in earnings, EBITDA and dividends, which have translated into sustained share price outperformance.

24:55 The updated 2026 expectations have driven an increase to our five year EPS CAGR to 8% and our five year EBITDA CAGR to 7% from 6% previously. Our investment proposition, which has remained the same, is highlighted on slide 20. A resilient low risk infrastructure platform underpins stable and growing cash flows and a diversified business mix that provides earnings visibility and capital allocation flexibility. Visible organic growth opportunities position the company to grow earnings and cash flow per share while maintaining financial flexibility and drive sustainable dividend growth. With that, I'll turn the call back to the operator and open the line for questions.

25:46 Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Rob Hope from Scotiabank. Morning, everyone. I wanna dive a little bit deeper into the potential for further, producer partnerships up in Northeast BC. You know, are you having conversations up there to support incremental infrastructure build that could be a header in essence for your global export business? Hey Rob, it's Vern. I'll start that off and then hand it over to Randy.

26:39 I think in Northeast BC we're in great position. I think as you know it's sometimes challenging to build infrastructure up there given the precedence with the First Nations. So the good news is we're well situated with our Townsend and North Pine assets to add significantly more volumes up there and obviously we've sized up our rail facility to at North Pine to handle unit trains. This new partnership with Tourmaline gives us a second and significant loading opportunity where if other volumes come in, we're able to capture those as well. So I'll turn it over to Randy and he can just fill in a little bit more color. Yeah, thanks, Orton. I would just add that we do think that LNG Canada Phase two is likely going to be FID ed here soon. And also the federal government's been very supportive of other LNG projects, and so that's just going to add more supply the Montney, and we think that our assets are well positioned to take advantage of that.

27:51 Appreciate that. And then maybe just moving over to the global export business, understand that pricing is volatile, but we are hearing about physical premiums to the posted FEI pricing. Can you speak to how you're benefiting from this dynamic? And do you realize that even when you do hedge relative to FEI as well as moving forward how it is informing kind of your hedging profile? I think the way characterize that Rob is with this massive disruption in global supply and demand remaining relatively constant is the fact that oftentimes people are not want to show their physical sales on the index.

28:38 So that's why there's particularly a disconnect between a physical sale and the index. So going forward on our merchant capacity, we're able to capture the actual physical sale premium over FEI and we're seeing that continue as we work through this situation. Thank you. I'll hop back in the queue. Your next question comes from the line of Patrick Kenny from National Bank Capital Markets. Please go ahead. Thank you. Good morning. Maybe just on the new tolling agreement with Tourmaline, just wanted to get your initial thoughts here on their one year pause on gross spending and any read through to perhaps any broader temporary slowdown in activity across Northeast BC? And I guess what that could mean timing wise for some of your unsanctioned growth opportunities, whether it's Opti two or further upsizing at North Pine, Pipestone or Dimmesdale?

29:44 Patrick, it's Randy. Yeah, we totally understand why Tourmaline wanted to pick a pause given where the natural gas prices are. But when you look at what their phase two expansions that was Conroy and Doe and that's really not kind of feeding our existing infrastructure. So it doesn't change our plans. Obviously we want to see that development and we know it will be developed but but it doesn't impact our long term plans. Yeah, and I'm just jumping in here. I think obviously we're seeing heightened activity from other producers, which is really driving the Townsend debottlenecking that we announced today. And I think the demand we're seeing on for Opti two is extremely high Patrick.

30:32 We expect to be concluded on commercial negotiations on incremental tolling arrangements within the next couple of months here. Okay, that's great. I appreciate that. And then I guess, Vern, as you think about your portfolio of tolling contracts, you've had good uptake from midstream peers as well as upstream customers, and now you're seeing increased demand from China. I guess, as you think about maximizing realized margins going forward, how are you thinking about the right mix in terms of customer type and maybe an update on where you're at today versus your longer term target? Sure. Patrick, we're still targeting to be 60% told on a long term basis.

31:21 So as we bring OTI two to FID later this year, we're still wanting to have at least 60% of the total export capacity under tolling agreements. We're starting to see early signs of Asian demand for more Canadian product. We're in active discussions on all kinds of supply arrangements between Japan, Korea, China and other jurisdictions. The disruption we're seeing in The Middle East obviously is highlighting how important it is to have a secure and reliable supply and Canada is obviously a great place for that. So as we approach the end of the decade and have 300,000 barrels a day of export capacity, we think there's going to be very high demand for tolling contracts and we'll see that play out over the next couple of months.

32:24 And I guess as you look to potentially add ethane exports to the franchise, can you provide just a bit more color on maybe how those discussions are progressing to secure the offtake contracts and also along the value chain, how you're thinking about sourcing the ethane and securing the rail logistics and whatnot? Yeah, ethane is obviously in an earlier stage than Opti two and even Opti three. We've made great progress and put one of the most critical elements, which is just the rail logistics. We recently received Transport Canada approval to use a pressurized car to move ethane, that removes a significant gating item. I think where we're at now is obviously to get better line of sight on the capital cost involved and on all the logistics from loading and then export facility wise.

33:29 The dynamic is China imports almost 100% of its ethane today from The US Gulf Coast. With global trade tensions, China is extremely eager to get a variety of supply sources and Canada is well positioned for that. I think as we mentioned on our prepared remarks, there's 500,000 barrels a day of ethane in the gas stream with lots of facilities across Alberta and BC for that ethane to be railed. So we think a lot of the parts are already there. We just need to do a little bit more work on figuring out what is a competitive rate. And then with ethane, given that it's a new product with probably one buyer or a series of buyers in one location, we're going to look to target a much higher percentage of tolling on that kind of transaction.

34:34 Okay, that's great color. I'll leave it there. Thanks. Your next question comes from the line of Robert Catellier from CIBC. Please go ahead. Yeah. Hi. Good morning, everyone. Just wanted to clarify on the Groundworks Rail project that there is an ability to accommodate third party volumes, and it's not exclusive to tourmaline. Hey Rob, it's Randy Koon calling here. We do have rights to participate if there's any available space, but for the first initial phase it is entirely tourmaline, but we do have rights to bring in third parties if there is a capacity available and we also do have rights to potentially participate in expansion.

35:25 Can you provide updates on how do I say this, the aspirational Trigon LPG project? I know there's been a couple of project filings from Triagon and also your reply. So maybe you could just summarize where we're at there. And then your response, maybe you could touch on where you see First Nations support lying for your export assets versus some of the other projects. Hey Rob, maybe I'll just comment on Trigon and I'll hand it over to Randy to talk about our stakeholder relations. At the end of the day, I think it's pretty clear that there's only one entity on Ridley Island that has the ability to develop LPG handling and export and that's us.

36:17 That's been reinforced several times by the Prince Rupert Port Authority and obviously there's a legal court case coming up here in the spring of twenty twenty seven. I think our case is extremely strong and we are not very worried about it. And just to reiterate, we will make sure that we protect our commercial rights all the way in any possible way. And then finally, Randy chimes in is our goal is to have all of our stakeholders aligned with us over the long term. We've done that over and over and I think Northeast BC is a great example of how we have really positive relationships with our First Nations. So with that, I'll let Randy talk about the particular situation with the Yeah, so we've had a strong relationship with the Met Met. For over a decade since we've been in Prince Rupert.

37:24 We see them as a long term partner. We do think that we're making positive progress the issues in hand and we think we'll have a positive outcome in the end. Thanks for that. And my last question is for Corine. I know it's early days as you step into the role here, but I wondered if there was any thoughts on possible changes to regulatory strategy, especially as it relates to those building emissions performance standards or on the efforts to narrow the ROE gap. Good morning, Rob. Thank you. So, I'm excited to be here today. Just want to say upfront, there really is no change in our utility strategy. The team has done a great job making improvements in the utility and we're going to continue to build on that foundation.

38:20 As we think about the regulatory strategy tied to what you were mentioning, I'm going to just maybe go right to gas bans and we're going to continue to oppose gas fans as they limit customer choice and customer affordability. The Mid Atlantic, it needs natural gas to support reliability, long term energy security, and customer affordability, and restrictive policies only increase regional energy challenges. So we're going to continue with both our legal and our advocacy strategy, that supports ultimately what we're trying to regulatory strategy, and at a high level, we have no change in. We're going to continue to close our ROE gap. There's no change in our focus there, and we're going to continue to put safe pipe into the ground to improve the safety and security of our our system.

39:12 And customer affordability is obviously top of mind, so we're going to double down on our operating costs and our capital cost efficiencies so that at the end of the day it's more affordable for our customers. Hey Rob, I was just going to add a little bit there on the gas bands. Like if you think about it, PJM is short energy and short energy in a big way. For a county or a city to think about limiting the available sources of energy and trying to shift that to the power grid is just nonsensical. You're making an energy shortage problem even worse. And then finally, you've seen different outcomes on a legal basis at different district courts in The US.

40:05 This obviously is leading to the Supreme Court and we just recently see the DOJ and the DOE really weigh in on these items. So we're very, we have a real positive lean that this will ultimately get resolved at the Supreme Court in a fashion that makes sense for everybody. Yeah, I agree. It just doesn't make sense for everybody to focus on affordability and then at the same time turn around and limit choice. Okay, thank you. Your next question comes from the line of Jeremy Tonet from JPMorgan. Please go ahead. Hey, good morning. This is Eli on for Jeremy. I just wanted to touch on MVP quickly. I know that the pipe is flowing and there's some expansions in the works, but if you could just remind us on your broader strategy with that asset and how should we think about the opportunity for future monetizations there?

41:07 Hey, Ila, it's John. So if we broke it into the three pieces, we'd agree with your take. The Mainline continues to perform very well and with each passing month, our investment thesis to retain that asset continues to be reiterated. So, we're very happy with the investment there. MVP Boost continues to push forward for mid-twenty eight in service date. One burning issue continues to get worked through and ultimately we think that's very resolvable and in line with what we've talked about in the past. The build economics on that are very strong around a three times build multiple. And then lastly on Southgate, it's progressing very well. All the regulatory approvals are in place. Construction currently taking hold right now.

41:53 Welded pipes started going in the ground in July and you would have seen this out of EQT's disclosures, but the partnership elected to accelerate capital spending and ultimately try to target any year in service date. So, things are progressing along very well there. From a long term holding perspective, I think you should probably consider it as a perpetual investment. We're very happy with obviously how all those things are going and the EQT and team is very strong and ultimately we think there is going to be incremental growth opportunities that come over the long term. Awesome, thanks. And then, you know, I know there's been a lot of discussion on REEF and future optimization phases, and there is sort of the further expansions bucket on one of your slides. So maybe we can just dive into that a little bit and think about the size there and the cadence of sort of future FIDs we might get across other projects that could kind of fit within your Midstream portfolio.

42:55 Just any color on that bucket would be great. I think, Eli, if you look at, I think one of the slides we have in the deck, we show that there's significant growth potential coming out of our global export platform. Really that's on the back of incremental gas egress and the development of data centers in Alberta. So for every incremental PCF a day of gas that's needed or can get to export markets, we see somewhere in the range of 35,000 to 50,000 barrels a day of incremental LPG supply becoming available for export. So if you work that through from 2030 to 2040, you kind of see that you need about, you need an incremental phase of reef every two or three years. So we're targeting Opti two to be in service in the late 2020s, so that would point to an Opti three in the early 2030s and an Opte four in the mid 2030s and so on and so forth.

44:09 Obviously, ethane is an incremental opportunity on top of that where the initial phase would be something in the range of 60,000 barrels a day but that could grow substantively over time. The great news is that the Reef common facilities are able to handle 500,000 plus barrels per day of exports, so that gives us a tremendous growth platform over the next decade. And as egress comes forward, as exports grow, there will be the need for incremental gas processing, fractionation, rail loading and all these great things. And we have irons in the fire across our footprint in Alberta and in Northeast BC. And we see strong opportunities with further debottlenecking in Northeast BC plus a North Pine expansion, and then gas processing opportunities in the Alberta Montney. So we're super excited about the potential growth outlook that we have in our midstream business.

45:19 Awesome, appreciate the color. Your next question comes from the line of Ben Pham from BMO. Please go ahead. Hey, good morning. Just want to go back to the propane export position and you a bridge there with respect to Opti-two potential in service, Opti-three and then ethane at Phase I. I'm just curious, as you think about sequencing that those projects, are you able to just think about your your manpower and the site and your balance sheet, are you able to to build or start construction on more than one of those, or you need to sequence it in a way that's spread out those projects?

46:14 So with Opti two, Ben, we have our permits in hand. So we're able to start construction any time now. The issues that we want to finalize before we go to FID is number one, having a firm capital cost estimate at the class three level. We should have that in the next few months. The second is what we talked a little bit earlier about is making sure that we have sufficiently derisked the cash flows for any expansion and we're line of sight, very strong line of sight for incremental tolling contracts again which we expect to have on hand within the next couple of months. So that would lead obviously to an Opti-two FID.

47:05 With ethane and Opte-three and so forth, we would need to make regulatory filings to get the appropriate permits to start building. But those all can happen If you have a good look at our Reef plot plan on our website, there's lots of room for all of this to happen. Really the gating items is the timing of the regulatory approvals. Remember that most of this equipment is we don't need to build another work, we don't need to add any loading platforms or things like that. So all the common infrastructure is completed and we're just bringing in extra storage and compression that's predominantly being built off-site and can be transported to roots. So we're very well positioned and risk managed about how we continue to expand the export platform, Ben.

48:10 Yeah, and I think the only other thing Ben is I think you had balance sheet in there as well. I mean, we are not concerned on the balance sheet perspective at all. I mean, I talked about in my prepared remarks, we've got the capacity to deploy 1,600,000,000 to $1,800,000,000 a year. I mean, so we certainly from a funding capacity perspective wouldn't have any concerns and that's one of the real benefits of the balanced business model we have between utilities and midstream. And you would have seen that over the last couple of years that if we have attractive projects in the midstream business, we can flex a bit more capital there. And then in periods like this year when the reef is nearing completion, you know, we flex more into utilities. So from a financing and balance sheet perspective, not concerned.

48:58 Got it. Maybe another one on the utility side of the business. You mentioned the Maryland case was a constructive outcome. Can you unpack that a bit? Just maybe some of the things you like, some of the things you didn't like? And then maybe just broader, really just that 70 basis points looks like a nice improvement from what you've been highlighting before overall. What's been a key driver of the change? Thanks, Ben. I would say that the key driver to the constructive outcome was our planning process and us working with the commission and the staff to better understand at the beginning of the process what they were looking for. So as we were prepping and going into it, I think we were just better planned to be blunt.

49:47 And we have seen positive movements with the Maryland PSC, so we're in general we're encouraged with what we're seeing for results there. And I just wanted to check the previous messaging on the ROE was 100 bps plus or minus around that, and you're doing about 70 basis points you're expecting this year. Is that 10 more of cost reductions that's driving the gap, moving the gap in more? So we're a little bit higher than that this year, Ben. Last year, we exited around a 100 basis points. This year, we'll narrow the gap a bit. You're right though, on a target basis over the long term, we wanna be to that 50 to 75 basis points because factoring in, as you well know, the historical test year lag. But with optimization, we do have the ability to help fill that gap.

50:43 Okay, got it. Okay, thank you. Your next question comes from the line of Maurice Choi from RBC. Please go ahead. Thank you, and good morning, everyone. Just sticking with the ethane team theme here. Can I confirm if ethane is covered under the exclusive right your JV has to export LPGs? And if not, is there an opportunity to form partnerships locally, particularly if reefers capped at 500,000 barrels a day of capacity? Well, I think I'm just going to kick that over to Randy. Thanks. Yes, I think it is included in that exclusivity. As far as we are looking at partnerships for ethane, so we are looking at supply partnerships.

51:34 We do, as Bernd talked about, there is 500,000 barrels a day of ethane being injected into the gas stream and there's straddle plants that can just cool down and capture those bad ethane. So we don't think there's a lot of investment or significant investment upstream and the ethane supply will be available. But we need to look at the rail cars and so we're looking at partnerships for that and also the offtake would likely be a partnership as well. And I think Maurice ultimately to get to the global export part of it, there is more land that we can acquire on Ridley Island should there be extremely robust demand for both LPGs and ethane.

52:24 It's great to hear. And if I could just quickly follow-up with that. I think you mentioned earlier in the call that you're going to seek higher level of tolling for these ethane exports. Just wondering what other aspects of commercial or even a return perspective of an ethane infrastructure differ from an LPG propane butane infrastructure? Yeah, I would think of it more as traditional energy infrastructure where you want to do it under a take or pay contract effectively, Maurice. Thank you. And my congratulations to Karim on the new role. Thank you. Thank you. The last question comes from Sam Burbel from Jefferies. Please go ahead.

53:10 Hey, guys. Thanks for squeezing me in. Apologies if you had addressed this before, but wanted to ask about the economics of the Ground Birch rail venture with Tourmaline. Looks like there is at least like a minor amount of CapEx that got thrown into the budget this year. So curious what the quantum of CapEx might be? And then like is the EBITDA contribution just simply the 10,000 barrels a day that's getting tolled? Or is there other contributions? Just trying to frame the build multiple around this project. Hi, it's Randy. It's very minimal capital for us. It's less than $20,000,000 for us to participate in the rail yard. But the benefits of that rail yard is that we see significant savings in rail costs both in rail, our fleet, our rail costs getting to the export facility, our storage costs, so that's why we want to make that investment. We also see that our North Pine facility and this Groundworks facility, should be some synergies between the two and we do see additional rail savings.

54:17 And of course the export tolling is not a benefit. So it's an extremely lucrative transaction for us on a capital deployed basis just because there's a huge opportunity for us to reduce our operating costs. Yeah. Okay. That makes total sense. And then last one, on shipping costs, understand that you guys have locked in the 2026 exposure already, so covered on that. But curious if all of 2027 remains open and just like as things stand, I mean, there any risk of upward pressure on costs and downward pressure on margins in the export business from shipping exposure next year?

55:07 No, it's Sean here. I'd say the answer is essentially no. I mean we have three time charters right now. We're getting another one delivered next year. So we remain very comfortable with you know, the exposure we have from a time charter perspective. So you know, we definitely are not open as we enter next year. Know, we are taking on additional time charter, so we'll have four next year and are comfortable with our position as we move into 2017. Okay, perfect. Thank you, guys. This concludes the Q and A portion of today's call. I will turn the call over to Mr. Swanson. Please go ahead. Thanks to everyone for joining the call this morning. The Investor Relations team is around if anyone has any further questions. Have a great day.